AnoraMahmudova

NEW YORK (MarketWatch) — U.S. stocks ended Thursday with the largest advance in three weeks, as two days of steady oil prices along with dovish comments by a Federal Reserve member helped further fuel a buying frenzy begun Wednesday.

The two-day rally pushed the benchmark S&P 500 and Dow industrials into green for the year and within a striking distance from record levels reached at the end of December. Meanwhile, a measure of implied volatility — CBOE Vix index — fell below its long-term average to 17.

The S&P 500
SPX, +1.32%
added 36.26 points, or 1.8%, to 2,062.14, rising the most in three weeks, with the materials, technology and energy sectors leading gains, each rising more than 2%. Nine out of the 10 S&P sectors ended with a gain of more than 1%.

The Dow Jones Industrial Average
DJIA, +1.38%
jumped 323.35 points, or 1.8%, to 17,907.87, with all 30 of its components advancing.

The Nasdaq Composite
COMP, +1.03%
jumped 85.72 points, or 1.8%, to 4,736.19 and turned flat for the year.

Phil Orlando, chief equity strategist at Federated Investors, was not surprised to see the rebound.

“Stock markets were oversold, as permabears took over for a few days, claiming that a drastic fall in oil prices signals global troubles, Orlando said.

“The S&P 500 dropped 5% in a matter of days, while Treasurys and [the] Vix reached overbought levels while fundamentals suggested stocks should be higher. We see this rebound as genuine,” Orlando added.

The Federated strategist also notes that at current levels, stocks are relatively inexpensive. “Given the long-term interest rates at around 2% and inflation at around 1.5%, equities warrant price-to-earnings ratios of 18. So, at 15 times earnings currently, we would consider them attractive,” he added.

Gains on Wall Street came on the heels of a strong advance on Wednesday, which marked the first gain for the S&P 500 this year. Prospects for further central-bank easing in Europe are also whetting investors’ appetite for riskier assets, namely equities.

Meanwhile, a slightly weaker-than-expected weekly report on jobless claims, released before the regular market open, was shrugged off by investors.

Quincy Krosby, market strategist at Prudential Financial, noted that some of the buying on Wall Street is due to investors selling stocks to cover their short positions.

“We would like to see more breadth to this rally where high-beta or cyclical stocks are outperforming before calling it a risk-on mode,” Krosby said.

She said it was early to say wether risks of defaults in high-yield energy bonds are imminent or whether they will result in a credit squeeze.

Oil has been the source of trading angst over the past few sessions, so perhaps some of the rally in equities can be attributed to the recent stabilization in the commodity, which has lost more than half of its value since peaking in June last year.

Will stock gains stick? Federal Reserve Bank of Chicago President Charles Evans said the U.S. might not hit the Fed’s target inflation rate until 2018, and he doesn’t advise a rate hike until 2016. Evans, who is a voting member of the Federal Open Market Committee this year, was speaking at an event sponsored by the University of Chicago late Wednesday.

Stocks to watch: Shares of Biodel Inc.US:BIOD
surged on news that its concentrated insulin treatment had beat out rival treatments.

Bind Therapeutics Inc.US:BIND
soared after the company said it expects one of its partners to file a drug application with the Food & Drug Administration by mid-2015 that uses their Accurin drug-delivery particles.

NephroGenex Inc.US:NRX
rose after the company got good news for its diabetic nephropathy treatment.

Apollo Education Inc.
US:APOL
shares dove after the for-profit education company said its fiscal first-quarter earnings fell 66%, pointing to a decline of new and enrolled students and an increase in regulation.

Nikkei rallies, euro sinks: The Japanese yen — a traditional haven — fell against the dollar
USDJPY, +0.00%
as the Nikkei 225 index
NIK, +0.26%
rose over 1%. Japanese stocks took a cue from Wall Street, but also from the continued gain in oil prices.

Meanwhile, the euro
EURUSD, +0.0088%
touched its lowest level against the dollar since 2005, amid concerns about Greece and on prospects for further easing out of the European Central Bank, a day after data showed the eurozone slipped into negative inflation for the fist time in five years.

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